Gov­ern­ment now faces a prob­lem in how to fund it­self

Min­is­ters can only look on en­vi­ously at other na­tions as mud­dled mes­sag­ing and con­tra­dic­tions con­tinue

The Daily Telegraph - Business - - Front Page - Jeremy Warner

Apolo­gies for start­ing with a cliché, but what a com­plete and ut­ter sham­bles. I was stand­ing on the top of Bowfell in Cum­bria – with its mag­nif­i­cent views down to More­cambe Bay to the south and the neigh­bour­ing peaks of Scafell and Scafell Pike to the north – when spec­u­la­tion first started to cir­cu­late about a sec­ond lock­down.

Mer­ci­fully out of reach of a mo­bile phone sig­nal, and there­fore bliss­fully un­aware of this dispir­it­ing re­ver­sal in strat­egy, a cool­ing breeze was blow­ing across the sun-drenched sum­mit as if de­lib­er­ately sum­moned to re­fresh af­ter the ex­er­tions of the climb.

Down in the Lang­dale val­ley, the hostel­ries were buzzing with sil­ver­haired stay­ca­tion­ers; apart from some­what laxly ob­served so­cial dis­tanc­ing and per­spex screens at the bars, there was lit­tle sign, or even men­tion, of the trau­mas of the last six months. All was right with the world, and for a mo­ment it was pos­si­ble to be­lieve the pan­demic largely over.

Re­gret­tably not. Lis­ten­ing to the ra­dio on the long drive back to London de­liv­ered the req­ui­site re­al­ity check.

The Gov­ern­ment, I fear, only has it­self to blame for the mess the na­tion is now in. From the start, its mes­sag­ing and in­struc­tion have been con­fused, half-hearted and of­ten con­tra­dic­tory.

Just two weeks ago, min­is­ters were openly crit­i­cis­ing com­pa­nies that seemed to be drag­ging their feet in bring­ing work­ers back to the of­fice, as if they were some­how fail­ing in their pa­tri­otic duty.

Now, em­ploy­ees are again told to work from home, with all prior in­struc­tion, only so re­cently is­sued, for­got­ten. Much of the rest of the Gov­ern­ment’s pack­age of curbs is pure win­dow dress­ing.

For many strug­gling eater­ies and pubs, the 10pm cur­few will be the fi­nal straw, while do­ing lit­tle if any­thing to stem the rise in in­fec­tions.

The new curbs ad­mit­tedly fall some way short of full-scale lock­down. Schools and uni­ver­si­ties are to re­main open, and thus far at least there has been no re­turn to the travel bans and Stal­in­ist im­pris­on­ment of last spring.

Yet I know of no one in gov­ern­ment who hon­estly be­lieves this is where things will end. Boris John­son’s “stitch in time” has in all prob­a­bil­ity come too late to stem the tide.

Plan­ning for a two-week, cir­cuit­break­ing na­tional lock­down some time next month is al­ready well ad­vanced. For the econ­omy, and many of the com­pa­nies that make it up, this is a piv­otal mo­ment. Up un­til now, and much to the sur­prise of bankers, there have been sur­pris­ingly few out­right in­sol­ven­cies. In­ter­est pay­ments and debt re­pay­ment sched­ules have been largely met. In part, that’s down to the Gov­ern­ment’s var­i­ous busi­ness and in­come sup­port schemes.

For in­stance, many con­ven­tional lend­ing fa­cil­i­ties have been re­fi­nanced with in­ter­est-free bounce-back loans.

But it is also be­cause as long as there was light at the end of the tun­nel, as long as the econ­omy was on the path to wak­ing up again, it seemed worth per­sist­ing. To see this now go into re­verse is for many an aban­don-all­hope mo­ment where to strug­gle on is only to throw good money af­ter bad. Bet­ter per­haps to cut your losses.

Re­tail­ers, restau­rants, fast-food out­lets and pubs have at­tempted man­fully to make things work since lock­down ended, but even be­fore the lat­est re­stric­tions, most were strug­gling for vi­a­bil­ity.

The clev­erer ones will have at­tached the lease on each out­let to a sep­a­rate com­pany, al­low­ing them to bank­rupt branches with­out land­lords be­ing able to come af­ter the par­ent for break­ing the lease. But most will hold all leases through the par­ent; if one goes down, they all go down.

Most land­lords are, mean­while, con­tin­u­ing to live in a by­gone age, de­mand­ing in­flated ren­tal pay­ments in full, not be­cause they delu­sion­ally don’t recog­nise changed cir­cum­stances, but be­cause loan covenants will be widely breached if the rents aren’t there to sup­port pre­vi­ously in­flated book val­ues.

Much the same ap­plies to com­mer­cial of­fice space, sub­stan­tial amounts of which can no longer sus­tain the sort of ren­tal pay­ments that sup­ported one time in­flated valu­a­tions. Com­mer­cial prop­erty is gen­er­ally at the heart of ev­ery loan im­pair­ment cy­cle. This one is go­ing to be no dif­fer­ent, how­ever much in­di­vid­ual banks may have at­tempted to re­duce their ex­po­sure af­ter the dis­as­ter of the fi­nan­cial cri­sis.

What’s so galling about the UK’s predica­ment is that a num­ber of other coun­tries seem to have man­aged things so much bet­ter. It may be that the post-in­dus­trial, ser­vice-based na­ture of the UK econ­omy makes it par­tic­u­larly vul­ner­a­ble to a con­ta­gion of this sort, but this can be no more than part of the ex­pla­na­tion for hav­ing to start clos­ing up shop again.

In Germany, the in­struc­tion has been clear, straight­for­ward and over­whelm­ingly com­plied with right from the start. If you be­lieve the num­bers, China – where the pan­demic be­gan for heaven’s sake – has man­aged to keep its Covid death toll down to less than 5,000. The in­fec­tion rate also seems to be largely con­tained at low lev­els with­out a need for na­tion­wide lock­downs. Here in Bri­tain, the rules and con­tain­ment mea­sures con­tinue to be overly com­pli­cated and quite ca­su­ally ob­served. So far, the mar­kets have been sur­pris­ingly tol­er­ant of the

Gov­ern­ment’s om­nisham­bles, thanks in part to mas­sive money print­ing by the Bank of Eng­land. But the re­cent wob­ble in the pound is a sign that their pa­tience may be wear­ing thin.

With most other coun­tries in vary­ing ver­sions of the same boat, there’s been safety in num­bers; in­ter­na­tional in­vestors have nowhere to run to.

But fast ap­proach­ing is a sep­a­rate, uniquely Bri­tish, self-made eco­nomic shock that may fur­ther shake con­fi­dence in the pound. Whether there is a trade deal with the EU or not, the end of the tran­si­tion is bound to dam­age ex­ports, at least for a while.

The con­se­quent fur­ther widen­ing of the cur­rent ac­count deficit will have to be funded some­how, for which over­seas in­vestors will de­mand a higher in­ter­est rate, fur­ther dam­ag­ing the al­ready par­lous fis­cal po­si­tion and driv­ing up mar­ket rates in the round – this at a time when the Gov­ern­ment needs to keep bor­row­ing to keep the econ­omy afloat.

As it is, the Trea­sury is strug­gling to pull off the old St Au­gus­tinian trick of promis­ing even­tual chastity, but please not yet.

The econ­omy is doomed if forced to tighten now, with out­put still in the dol­drums and the pan­demic not yet tamed.

The year ahead is go­ing to re­quire ex­cep­tion­ally skil­ful eco­nomic man­age­ment and judg­ment. On the ev­i­dence of Covid, it would, per­haps, be un­wise to bet on it.

Prime Min­is­ter Boris John­son yes­ter­day an­nounced new curbs on pubs to tackle ris­ing Covid-19 cases

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